ESTIMATING THE HOSPITAL-WIDE COST DIFFERENTIALS WARRANTED FOR TEACHING HOSPITALS - AN ALTERNATIVE TO REGRESSION APPROACHES

Under Medicare's Prospective Payment System, teaching hospitals receiv e additional reimbursements, vis-a-vis nonteaching hospitals, for both ''direct'' teaching expenses and for ''indirect'' expenses. They tota led $3.1 billion in fiscal year 1989. The authors propose and illustra te a non-regression-based, nonparametric method for viewing the total hospital-wide reimbursement differential warranted for teaching hospit als, a method utilizing a peer grouping of like hospitals to estimate two different ''best practices'' cost frontiers. The hospital's effici ently delivered cost to meet all of the hospital's actual service outp uts, including its teaching mission, and delivered level of quality of care, is compared to the corresponding cost when only the teaching mi ssion is excluded. The difference in these costs for a particular hosp ital can be used to estimate a suggested lump sum Medicare reimburseme nt add-on, in recognition of the hospital's teaching mission. The appr oach is illustrated using a subset of the Health Care Financing Admini stration's 1988 hospital data set, with comparisons of actual and sugg ested reimbursements provided.